India’s RBI Pushes Crypto Ban as Tax Officials Flag Offshore Risks

TLDR

• India’s RBI renews its push to keep crypto outside regulated finance.
• Tax officials warn offshore crypto trades weaken enforcement efforts.
• Stablecoins raise fresh concerns over sovereignty and tax visibility.
• India’s crypto market remains active despite unclear national rules.
• Regulators weigh tighter controls as reporting gaps continue to grow.

India’s crypto policy debate has sharpened again as the RBI pushes prohibition and tax officials flag offshore trading risks. The central bank wants digital assets outside regulated finance, and tax authorities see major compliance gaps. The issue now sits at the centre of India’s unresolved crypto framework.

RBI Pushes Banks Away From Crypto

The Reserve Bank of India has renewed its position against cryptocurrencies and privately issued stablecoins. Internal documents reviewed by Reuters show the central bank supports a policy leaning toward prohibition. It also wants banks and financial firms blocked from crypto exposure.

The RBI said this approach could reduce financial contagion risks. It argued that regulated lenders should not hold, trade or support private digital assets. The central bank wants crypto kept outside India’s formal financial system.

The central bank also raised concerns over stablecoins. It said foreign currency-backed tokens could weaken monetary sovereignty. Rupee-backed stablecoins could affect fiat issuance revenue and create stress risks.

Tax Officials Flag Offshore Trading Risks

India’s tax department has warned that offshore exchanges and private wallets weaken tax enforcement. Documents reviewed by Reuters show major gaps in crypto reporting. Fewer than one quarter of 645,000 crypto users reported transactions for the year ending March 2023.

The department said overseas platforms make beneficial ownership harder to trace. It also said peer-to-peer rupee trades can hide taxable income. As a result, authorities face difficulty recovering taxes from digital asset activity.

India currently taxes crypto gains at 30%. Officials said stablecoin use could make gains harder to detect. This happens because users may avoid converting assets into fiat before moving funds.

Policy Gap Keeps Crypto In A Grey Zone

India has not passed a dedicated cryptocurrency law. The Supreme Court removed the RBI’s 2018 banking restrictions in 2020. Since then, crypto activity has continued without a clear national framework.

A 2021 draft bill proposed a ban on private cryptocurrencies. The government never introduced it in Parliament. A planned discussion paper has also faced repeated delays.

India remains a major crypto market. Reuters cited tax estimates showing nearly 39 million Indians held about $2.1 billion in digital assets by late May. The Ministry of Corporate Affairs is reviewing accounting standards for virtual digital assets.

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